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CMA CGM Debt Plan At Risk Amid Virus Fears

BLOOMBERG, February 26, 2020

CMA CGM is trying to refinance $400m in credit lines in March. The company moves more than 10% of containers out of Asia

By Antonio Vanuzzo and Laura Benitez for BLOOMBERG – The coronavirus outbreak is threatening to scupper a debt refinancing for the world’s third-largest container shipping company.

France’s CMA CGM SA is aiming to start refinancing its debt pile by the end of next month. The Marseille-based company, one of the biggest maritime carriers out of China, is seeking to extend about $400 million of loans and is also in talks with creditors to refinance about 725 million euros ($784 million) of bonds due in January.

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“I don’t see a bond refinancing in the near term,” said Jan Patteyn, a credit analyst at Octo Finances in Paris. “The coronavirus adds uncertainty to the sector and should weigh on CMA’s first quarter results.”

The consequences could potentially be severe for CMA CGM, which has been present in Shanghai since 1992 and moves one out of eight containers from Asia to Europe and the U.S. The virus could finally trip up the company, which has used debt to fuel growth in recent years. It has about $18 billion of debt in total.

The shipper’s bonds maturing in January 2021 have slumped about 10 cents on the euro over the past month to 89 cents, pushing up the yield. That implies the company would have to pay interest in excess of 20% on a new debt sale.

The price of credit insurance on CMA CGM’s debt posted the biggest increase in a gauge of 75 high-yield companies on Monday, rising to about 1,620 basis points. The swaps are at their highest level since November and indicate a 72% probability of default in five years, according to ICE Data Services.

A CMA CGM spokesman said the company will provide details on its plans when it publishes its financial results in early March.

The spread of coronavirus is weighing on seasonal demand that is already traditionally low for shipping companies, according to Bloomberg Intelligence analyst Chris Muckensturm.

The container shipping market faces a challenging 1Q as the coronavirus exacerbates seasonally weak liner demand. With lingering U.S.-China tariffs and IMO rules coming into force, the prospects are dimming for a near-term recovery in liner volume growth that weakened to 0.8% in 2019, the slowest in seven years.

The Shanghai Containerized Freight Index, which measures spot rates for export containers out of China’s busiest port, fell to a two-month low of 888 points last week. The chief executive officer of A.P. Moller-Maersk A/S, the world’s largest shipping company, has warned investors of “considerable uncertainties” for 2020 because of the virus.

CMA CGM has already tried to cut its debt by disposing a stake in Terminal Link. However, the deal agreed in November came with a minimum guaranteed dividend payment to the buyer, which could put further pressure on liquidity.

The company is seeking to refinance its debt after already turning down offers of expensive private credit lines from a group of hedge funds.

Coronavirus “has weakened sentiment of investors towards the credit, which was already burdened by a high debt load,” said Jayanth Kandalam, a credit analyst at Lucror Analytics in Singapore. “A refinancing per se may be challenging in the near term unless results improve.”

— With assistance by Ercan Ersoy

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